Robb Company produces remote car starters for cars and sells them to automotive manufacturers for $100...
- Robb Company produces remote car starters for cars and sells them to automotive manufacturers for $100 each. Full capacity is 20,000 systems per month, but it is currently producing 18,000 systems per month for its regular customers. Robb’s manager, Ro Watts, receives a call regarding a one-time special order: Redd Automotive needs 2,000 systems and will pay $65 per system. Robb will incur no selling costs for the special order. Robb reports the following monthly results:
|
Total |
|
|
Revenue |
$1,800,000 |
|
Direct Materials |
450,000 |
|
Direct Labor |
180,000 |
|
Variable Overhead |
396,000 |
|
Fixed Overhead |
54,000 |
|
Variable Selling Expenses |
342,000 |
|
Fixed Selling Expenses |
36,000 |
Required:
- Should Robb accept this one-time special order?
- Redd’s manager calls again: They’ve run some new calculations, and they really need X systems at the same $65 price. It will have to be an all-or-nothing deal. This order will displace some of the volume sold to regular customers who are a lot more profitable. Assuming that Robb’s regular customer relationships will not suffer due to a small one-time volume reduction, and based on financial considerations alone, what is the maximum value of X?
Homework Answers
1. In the first situation, there is no loss of regular orders. Therefore, there is no opportunity cost involved.
| Reject Special Order | Accept Special Order | Increase ( decrease ) in Net Operating Income | |
| Revenue ( 2,000 * $ 65) | $ 0 | $ 130,000 | $ 130,000 |
| Less: Avoidable costs | |||
| Direct materials( $ 450,000 / 18,000 * 2,000) | 0 | 50,000 | (50,000) |
| Direct labor ( $ 180,000 / 18,000 * 2,000) | 0 | 20,000 | (20,000) |
| Variable Overhead ( $ 396,000 / 18,000 * 2,000) | 0 | 44,000 | (44,000) |
| Totals | $ 0 | $ 16,000 | $ 16,000 |
As acceptance of the special order leads to increase in net operating income by $ 16,000, the special order should be accepted.
Fixed overhead and fixed selling expenses are not relevant, as they would remain unchanged regardless of the decision to accept or reject the special order.
2. If acceptance of the special order results in loss of regular orders, there is opportunity cost involved.
Contribution margin per regular order = $ 100 - $ 76 = $ 24.
Therefore, minimum price to be quoted for special order = Variable Cost per Unit + Contribution Margin lost per unit of regular order = $ 57 + $ 24 = $ 81
Add Answer to:
Robb Company produces remote car starters for cars and sells
them to automotive manufacturers for $100...
Edo Ltd produces cricket bats for kids that it sells for $37 each. At capacity, the...
Edo Ltd produces cricket bats for kids that it sells for $37 each. At capacity, the compan produce54 000 bats a year. The costs of producing and selling 54 000 bats are as follow Total costs Cost per bat $14 Direct materials $756 000 Direct production labour 4 216 000 Variable production overhead 108 000 Fixed production overhead 270 000 108 000 Variable selling expenses Fixed selling expenses 162 000 Total costs $1 620 000 ----------------- ----- ---- -------- 1....
Calla Company produces skateboards that sells for $61 per unit Calla Company produces skateboards that sell...
Calla Company produces skateboards that sells for $61 per
unit
Calla Company produces skateboards that sell for $61 per unit. The company currently has the capacity to produce 95,000 skateboards per year, but is selling 80,300 skateboards per year. Annual costs for 80,300 skateboards follow Direct materials Direct labor Overhead Selling expenses Administrative expenses Total costs and expenses $ 931, 480 714,670 952.000 543,000 463,000 $3,604,150 543.000 A new retail store has offered to buy 14,700 of its skateboards for...
Rutkey Collectibles is a small toy company that manufactures and sells metal replicas of classic cars. Each car sel...
Rutkey Collectibles is a small toy company that manufactures and sells metal replicas of classic cars. Each car sells for $3.55 The cost of each unit follows: Materials Labor Variable overhead Fixed overhead ($27,625 per month, 22,100 units per month) Total costs per unit $1.10 2.40 8.30 1.25 $3.05 ences One of Rutkey's regular customers asked the company to fill a special order of 600 units at a selling price of $2.30 per unit. Rutkey's can fill the order using...
Calla Company produces skateboards that sell for $65 per unit. The company currently has the capacity...
Calla Company produces skateboards that sell for $65 per unit. The company currently has the capacity to produce 100,000 skateboards per year, but is selling 81,300 skateboards per year. Annual costs for 81,300 skateboards follow. Direct materials $ 861,780 Direct labor 585,360 Overhead 955,000 Selling expenses 546,000 Administrative expenses 474,000 Total costs and expenses $ 3,422,140 A new retail store has offered to buy 18,700 of its skateboards for $60 per unit. The store is in a different market from...
Calla Company produces skateboards that sell for $54 per unit. The company currently has the capacity...
Calla Company produces skateboards that sell for $54 per unit. The company currently has the capacity to produce 90,000 skateboards per year, but is selling 81,700 skateboards per year. Annual costs for 81,700 skateboards follow. Direct materials $ 915,040 Direct labor 718,960 Overhead 957,000 Selling expenses 554,000 Administrative expenses 479,000 Total costs and expenses $ 3,624,000 A new retail store has offered to buy 8,300 of its skateboards for $49 per unit. The store is in a different market from...
KidSport Ltd produces cricket bats for kids that it sells for $37 each. At capacity, the...
KidSport Ltd produces cricket bats for kids that it sells for
$37 each. At capacity, the company can produce54 000 bats a year.
The costs of producing and selling 54 000 bats are as follows:
KidSport Ltd produces cricket bats for kids that it sells for $37 each. At capacity, the company car produce54 000 bats a year. The costs of producing and selling 54 000 bats are as follows: Total costs Cost per bat $14 $756 000 Direct materials...
Calla Company produces skateboards that sell for $62 per unit. The company currently has the capacity...
Calla Company produces skateboards that sell for $62 per unit.
The company currently has the capacity to produce 90,000
skateboards per year, but is selling 80,700 skateboards per year.
Annual costs for 80,700 skateboards follow.
Direct materials
$
855,420
Direct labor
653,670
Overhead
946,000
Selling expenses
543,000
Administrative expenses
474,000
Total costs and expenses
$
3,472,090
A new retail store has offered to buy 9,300 of its skateboards
for $57 per unit. The store is in a different market from...
Calla Company produces skateboards that sell for $61 per unit. The company currently has the capacity...
Calla Company produces skateboards that sell for $61 per unit.
The company currently has the capacity to produce 95,000
skateboards per year, but is selling 80,400 skateboards per year.
Annual costs for 80,400 skateboards follow.
Direct materials
$
916,560
Direct labor
578,880
Overhead
947,000
Selling expenses
542,000
Administrative expenses
461,000
Total costs and expenses
$
3,445,440
A new retail store has offered to buy 14,600 of its skateboards for
$56 per unit. The store is in a different market from...
Calla Company produces skateboards that sell for $69 per unit. The company currently has the capacity...
Calla Company produces skateboards that sell for $69 per unit. The company currently has the capacity to produce 95,000 skateboards per year, but is selling 81,800 skateboards per year. Annual costs for 81,800 skateboards follow. Direct materials Direct labor Overhead Selling expenses Administrative expenses Total costs and expenses $ 875,260 629,860 942,000 557,000 479,000 $3,483,120 A new retail store has offered to buy 13,200 of its skateboards for $64 per unit. The store is in a different market from Calla's...
Calla Company produces skateboards that sell for $67 per unit. The company currently has the capacity...
Calla Company produces skateboards that sell for $67 per unit. The company currently has the capacity to produce 100,000 skateboards per year, but is selling 81,000 skateboards per year. Annual costs for 81,000 skateboards follow. Direct materials Direct labor Overhead Selling expenses Administrative expenses Total costs and expenses $ 874,800 623,700 955,000 553,000 470,000 $3,476,500 A new retail store has offered to buy 19,000 of its skateboards for $62 per unit. The store is in a different market from Calla's...
Edo Ltd produces cricket bats for kids that it sells for $37 each. At capacity, the compan produce54 000 bats a year. The costs of producing and selling 54 000 bats are as follow Total costs Cost per bat $14 Direct materials $756 000 Direct production labour 4 216 000 Variable production overhead 108 000 Fixed production overhead 270 000 108 000 Variable selling expenses Fixed selling expenses 162 000 Total costs $1 620 000 ----------------- ----- ---- -------- 1....
Calla Company produces skateboards that sells for $61 per
unit
Calla Company produces skateboards that sell for $61 per unit. The company currently has the capacity to produce 95,000 skateboards per year, but is selling 80,300 skateboards per year. Annual costs for 80,300 skateboards follow Direct materials Direct labor Overhead Selling expenses Administrative expenses Total costs and expenses $ 931, 480 714,670 952.000 543,000 463,000 $3,604,150 543.000 A new retail store has offered to buy 14,700 of its skateboards for...
Rutkey Collectibles is a small toy company that manufactures and sells metal replicas of classic cars. Each car sells for $3.55 The cost of each unit follows: Materials Labor Variable overhead Fixed overhead ($27,625 per month, 22,100 units per month) Total costs per unit $1.10 2.40 8.30 1.25 $3.05 ences One of Rutkey's regular customers asked the company to fill a special order of 600 units at a selling price of $2.30 per unit. Rutkey's can fill the order using...
KidSport Ltd produces cricket bats for kids that it sells for
$37 each. At capacity, the company can produce54 000 bats a year.
The costs of producing and selling 54 000 bats are as follows:
KidSport Ltd produces cricket bats for kids that it sells for $37 each. At capacity, the company car produce54 000 bats a year. The costs of producing and selling 54 000 bats are as follows: Total costs Cost per bat $14 $756 000 Direct materials...
Calla Company produces skateboards that sell for $62 per unit.
The company currently has the capacity to produce 90,000
skateboards per year, but is selling 80,700 skateboards per year.
Annual costs for 80,700 skateboards follow.
Direct materials
$
855,420
Direct labor
653,670
Overhead
946,000
Selling expenses
543,000
Administrative expenses
474,000
Total costs and expenses
$
3,472,090
A new retail store has offered to buy 9,300 of its skateboards
for $57 per unit. The store is in a different market from...
Calla Company produces skateboards that sell for $61 per unit.
The company currently has the capacity to produce 95,000
skateboards per year, but is selling 80,400 skateboards per year.
Annual costs for 80,400 skateboards follow.
Direct materials
$
916,560
Direct labor
578,880
Overhead
947,000
Selling expenses
542,000
Administrative expenses
461,000
Total costs and expenses
$
3,445,440
A new retail store has offered to buy 14,600 of its skateboards for
$56 per unit. The store is in a different market from...
Calla Company produces skateboards that sell for $69 per unit. The company currently has the capacity to produce 95,000 skateboards per year, but is selling 81,800 skateboards per year. Annual costs for 81,800 skateboards follow. Direct materials Direct labor Overhead Selling expenses Administrative expenses Total costs and expenses $ 875,260 629,860 942,000 557,000 479,000 $3,483,120 A new retail store has offered to buy 13,200 of its skateboards for $64 per unit. The store is in a different market from Calla's...
Calla Company produces skateboards that sell for $67 per unit. The company currently has the capacity to produce 100,000 skateboards per year, but is selling 81,000 skateboards per year. Annual costs for 81,000 skateboards follow. Direct materials Direct labor Overhead Selling expenses Administrative expenses Total costs and expenses $ 874,800 623,700 955,000 553,000 470,000 $3,476,500 A new retail store has offered to buy 19,000 of its skateboards for $62 per unit. The store is in a different market from Calla's...
Most questions answered within 3 hours.
-
Would You expect the analysis produced by the Legislative
Analyst’s Office to be more or less...
asked 7 minutes ago -
How configuring websites to use a common NFS share could
strengthen business continuity efforts
asked 8 minutes ago -
Arrange the following aqueous solutions in order of increasing
boiling point: 0.25 m NaCl (sodium chloride)...
asked 9 minutes ago -
calculate the mass of forsterite (Mg2SiO4) that contains a
million (1.00•10^6) oxygen
asked 32 minutes ago -
A heat engine has an efficiency of 0.48. Initially,
the engine performs net work W per...
asked 22 minutes ago -
identify the effect on the financial statement on the
following senarios:
b) the clients business mainly...
asked 19 minutes ago -
Whenever two Apollo astronauts were on the surface of the Moon,
a third astronaut orbited the...
asked 29 minutes ago -
Suppose that Marriott’s production process is characterized by
constant returns to scale at all output levels....
asked 29 minutes ago -
If a customer places a buy order for one millisecond only on an
electronic limit order...
asked 37 minutes ago -
An aqueous solution of perchloric acid is
standardized by titration with a 0.101 M solution
of...
asked 47 minutes ago -
Huckster Corporation purchased land on January 1, 20X1, for
$24,000. On June 10, 20X4, it sold...
asked 44 minutes ago -
A 2400-kg airplane pulls two gliders, the first of mass 330 kg
and the second of...
asked 55 minutes ago